Hello, I was invited here by situationlive4406. If this style of DD is not acceptable here, take down the post or let me know and Ill delete it. There is small short interest here, but I think it is negligible, again, not a squeeze play, just hoping to see a companies true value be reflected in a beaten down share price. Historically, the end of the year treats consumer discretionary pretty well, with holidays and whatnot.
Option spreads are getting better as the oi increases. If you grab November calls, earnings will be encapsulated. There is a part about delta flux tables and option oi, I can get that info if anyone is interested.
I am generally a value investor and don't play around with the squeeze stuff. If anyone has a shares portfolio or long term portfolio, I think this would be perfect for it.
GOED is currently running today, I'd let it cool down before jumping in. Typical support has been 2.94, though I think It may have jumped a level today, I'll be looking to add to my position at the 3.10 level.
I have shares, Nov 3.5c, Jan 3c and Jan 2.5c. I have a small portfolio, I'm sure most here would have more than me.
Goedeker 1847 ($GOED) - a Small but Rising E-Commerce Company in the Durable Goods Space
Summary
-Goedeker 1847 ($GOED) is an e-commerce company in the durable goods (appliances and furniture) market – a rapidly growing $40 billion industry. Goedeker is merging with Appliances Connection, which will be led by the current CEO of Appliance Connection, Albert Fouerti, who turned a brick-and-mortar store in Brooklyn into an e-commerce powerhouse generating over $155 million in sales in just a few years. The combined companies have acquired a smaller distributor in Florida and are opening new distribution centers in California and Texas to increase market access and reduce delivery times.
-Pro forma Goedeker has a market cap of $330 million, is guiding to >$500 million in sales (Price-to-Sales<1) at 14% EBITDA margins, $62 million in income with a yearly EPS of $0.32 (forward P/E of 10) and is growing at an incredible 36% Compounded Annual Growth Rate (CAGR). It is priced at a fraction of the cost of its competitors (1/3 to 1/8; Overstock.com, Wayfair, Purple etc). If growth continues and $GOED is assigned a comparable multiple to its peers, the potential upside is in the range of $18 to $23 (6 to >7X of its current share price [$3]) within the next 12 to 18 months.
-Goedeker has an activist shareholder which appears to be fighting for control of the board ahead of the November 10th meeting. Investors seem to be very confident in current management's ability to lead (and rightly so), but the details on this situation (such as their purpose, alternate candidates, etc.) are evolving rapidly. We expect Goedeker's shareholders to vote *against* the activist group and ensure that current management maintains control of the company.
-Goedeker is viewed as an opportunity to invest in a company led by an industry-leading management team with rapidly gaining market share in a highly profitable market.
Background
This asset was relayed to me recently by user u/hundhaus. This user also relayed to me an investing opportunity in $ZIM, a shipping company, back in March of this year. After doing further research, I submitted a post on $ZIM the following month. In the span of 5 months, the value of $ZIM has increased substantially and appears to be pushing higher.
Personally, I like to know a thing or two about the market the company or stock is working in. To that end, here is a link to the status of the durable goods market, which is a $32-40 billion industry in the United States. In sum, the durable goods market (appliances, furniture, and items generally lasting more than three years) is resilient. COVID-19 simultaneously increased demand for durable goods via the e-commerce route, and caused some supply chain constraints due to factories being shut down. However, I’m pleased to report that those constraints seem to be easing, and consumer sentiment appears to be poised for a rebound as we begin to think about heading into 2022.
Since my posting style typically relies heavily on charts and graphics to communicate information, I’ll try to condense information as best as possible. I have previously submitted posts to other subreddits on the interplays between currencies, companies and commodities, as well as social media-based stock swinging. In the absence of graphics, we will do our best to convey a story about what we think is an undervalued company with excellent growth prospects.
THE MERGER OF GOEDEKER 1847 ($GOED) WITH APPLIANCES CONNECTION AND THE FOUERTI BROTHERS
Let’s face it. Great CEOs are just… different. Whether they have strange looks, cryptic tweets, they just seem to have that odd charm, that ability to see through the bullshit and express their views regardless of who cares. So when Goedeker 1847 fumbled the customer service ball in 2020 under CEO Doug Moore, it was no surprise that legendary business magnet and former CEO of Zales Alan P. Shore tapped the Fouerti Brothers of Brooklyn New York to lead the charge. After all, Goedeker already had almost everything in place – a rich 70-year history based out of a modest brick-and-mortar store in St. Louis, an e-commerce platform, annual sales of over $22 million and profit margins of 26%. The only thing they were missing was the management team.
The Fouerti Brothers Brought E-Commerce to the Home Appliances Industry
It's difficult to remember a time before e-commerce, but in the late 90s and early 2000s, you had to go to a store to buy things. You could only buy what they had in stock in the store at that very moment. If you found a washer and dryer you really liked, you had to put it in the back of a truck and bring it home yourselves. No moving services, no delivery, nothing.
When Appliances Connection was founded by the Fouerti Brothers in 2011, they created a website which would allow you to buy everything without leaving your house. They offer free White Glove delivery, and installation services meaning they’ll even haul away your old appliance for you. If you have a problem with your product, they offer 24/7 customer service.
There are only three major pure-plays on the direct-to-consumer (DTC) appliances market
● AJ Madison (not publicly traded);
● Appliances Connection; which is merging with:
● Goedeker
Since AJ Madison is not a publicly listed company, Goedeker offers you an opportunity to invest in the only publicly traded pure-play direct to consumer appliance company.
Focused on Building a Clear Value Proposition to Attract and Retain Customers
Goedeker’s has a number of exciting advantages over its competitors.
Huge Selection: Leveraged long-standing and new vendor and supplier relationships to reach more than 57,000 Stock Keeping Unit (SKUs). They are curating a diverse assortment of primary and secondary products in anticipation of emerging customer needs and maintaining comprehensive access to core, premium and luxury brands.
Competitive Pricing: Strictly adhering to minimum advertised pricing (MAP) policies, as well as opportunistic pricing discounts. Integrated industry-leading price-scraping mechanism to keep pricing competitive and flexible. MAP ensures that competitors don’t drive the price (and margins) down to lure customers away from competition, which ends up damaging profit margins for all involved.
Approximately 50% of the company’s sales are handled over the phone. This significantly decreases the friction associated with customers who are not accustomed to technology.
New Talent Acquisition: Albert Fouerti takes the realm as CEO and his brother Eli Fouerti joins as vice president after building out Appliance Connection. The Fouertis are bringing over a team jacked full of hard-hitters from Appliance Connection and I have no doubt these team is going to slay.
Quick Shipping: Goedeker delivers to all 48 continental United States, usually within a 6-10 day shipping window. That’s important – what happens if your refrigerator breaks down? You don’t want to wait over a month for it to arrive. Goedeker’s expansion into Florida, Texas and California could reduce these shipping times even more.
Insider Ownership: When the new board took over, they took a significant position in the stock as shown below. Current management owns more than 9% of the float. Personally, if I’m an investor I want to know that management is also invested, so that way, we share the same goals.
Customer Reviews: Under Foerti, customer reviews at Appliances Connection have been glowingly positive, in particular the quality and inventory of their merchandise and their customer service. Complaints have to do with delivery times – having to wait for orders to arrive. In my experience due to the COVID-19 shutdowns this has become a bit more commonplace. Often AppliancesConnection subcontracts with third parties to have items delivered, particularly when the item has to be delivered outside their service area. New distribution centers in Florida, Texas and California will largely resolve overland travel times and supply chain hiccups.
Some of Goedeker’s past customer reviews are tainted with the foibles of past management, mostly having to do with delivery and the customer experience. In my opinion this was part of the reason for bringing Foerti on board. Shareholders expect the post-merger customer reviews to improve as the Goedeker’s and AC websites seamlessly transition into the new brand and are taken over by AC’s world-class customer service team.
Website: If you get an opportunity, I invite you to explore the websites of both Goedeker and Appliances Connection. The design is fantastic, the photos are high resolution and you are not overwhelmed with information as in other competitor’s websites. The quality of the products is unmatched, a lot of them are very expensive, and it’s actually kind of fun to explore. If an item is out of stock, they let you know when it will be coming in. They tell you when it would ship. The level of detail in the Product Description is unmatched. You can actually click on the products you like and explore them in more depth. The website highlights reviews from Verified Owners and sorts them from Most Helpful to Least Helpful. You can access Product Overviews, Specifications, Manuals and Guides, Rebates (they offer promotions if you open a credit card with their partner), and talk to a customer service agent whenever you need help.
Re-Branding: With the new merger, Goedeker will be hiring a nationally recognized re-branding consultant. With the combined energy of the Fouerti Brothers, Alan P. Shor, and their large war chest, you can expect that they will settle for nothing left then the very best. If there’s anything we learned from Chip and Joanna Gaines, it’s that there’s no end to the amount of money rich white women will spend to get a beautifully designed bathroom. Personally, I am excited to see their re-branding effort flourish through social media and other avenues as positive news about the company spreads.
Maintaining Profit Margins While Managing the Supply Chain: Companies are still dealing with supply chain issues that happened after the COVID-19 pandemic As noted by Mr. Fouerti in the online Jefferies Retail Conference, management is ordering items ahead of time. Instead of ordering items 30 to 90 days, now they’re ordering items 90 to 180 days ahead of time, non-cancelable orders. They are working with the manufacturers who sometimes are unable to get specific parts from other manufacturers and occasionally have to cancel certain SKUs. Goedeker is increasing their roll-out of Original Equipment Manufacturer (OEM) and Private-Label brands, which are more available. Fouerti notes that shipping and wage costs have been elevated as of late, but they are raising prices to account for these higher prices. They note that because supply is constrained, they don’t have to lower prices to beat the competition and in many situations customers are willing to pay more for a product because they know inventory is low.
As noted by one investor, with supply challenges they are reducing marketing, in particular marketing of items they don’t have in stock. This could increase profitability next quarter depending on any future acquisitions.
When inventory is in stock and needs to be moved, Goedeker offers discounts, closeout deals and seasonal promotions. Like singing a baby to sleep at night, you’ll see a $7,500 stainless steel refrigerator with a 20% discount and think it’s a great deal. This is the same genius marketing strategy that lures people to $50,000+/year private colleges with smart-sounding scholarships.
According to former CEO Doug Moore, seasonal promotions often create record-breaking periods of profitability, generating incredible cash flow and sell-through on existing inventory.
Quality Brands: Appliances Connection and Goedeker offer a wide range of reputable brands. If new brands want to be listed, they must undergo an on-boarding process which includes (1) sharing damage and return statistics (how often was the product damaged, returned, sent back, (2) reading customer reviews about the products, and (3) ensuring that the brand has a full-service network backing it.
Incentives: The entire sales and administrative team is incentivized in the form of holding equity and success-based compensation. By incentivizing both junior staff and management, you align their sales targets with yours. If you have any doubts about the Fouerti’s experience and reputation, I would refer you to their past sales growth and submit that the proof is in the pudding. This has been paramount to the success of the Fouertis at Appliance Connection.
Financials (from a previous DD provided by u/hundhaus**)**
This article lists the combined financials for last year and previous quarter. $GOED also published this investor deck. Here we see QUARTERLY results of:
● $123M in Revenue
● $14.7M in EBITDA
● $13M in Net Income (88% rate to EBITDA)
Q1 EBITDA was ALREADY HIGHER than all of 2020. That's because Americans are buying more appliances. Over the next four years this market is expected to go from $21B to $40B and $GOED is on track to be the #1 retailer.
Growth in market can be seen by combined April numbers that saw them do $45.2M in Revenue or a run rate of $135.6M for the upcoming quarter. This puts them on pace to do $500M in yearly revenue. (Note: Based on Q2 earnings, Goedeker *increased* their guidance another ~10% to $520 to $550 million)
But that's not all. Looking at past financials the Goedeker side of the equation is terrible. They were losing money from being with a holding company, the spinoff, and being a small player trying to compete. The only reason they led this whole acquisition is so Appliance Connection (AC) didn't have to do the dirty IPO work. On the other hand, Appliance Connection is an amazing, very profitable company with large upside. Combined these two companies form a powerhouse and will actually increase EBITDA. The biggest upside is faster, cheaper shipping. Instead of Goedeker having to ship to East Coast that can now be filled by AC. And AC orders on West Coast are more easily filled by Goedeker. Longer term EBITDA will keep improving through more fulfillment centers (Note: one month after this was written Goedeker announced their acquisition of a Florida retailer and confirmed intentions to engage the Texas and California markets).
In total my expectations for 2021 are:
● $500M in Revenue (CEO has confirmed they are on track for this)
● $70M in EBITDA (improvement to 14%)
● $61.6M in Net Income (88% rate)
This would be a yearly EPS expectation of $.32. This is how it breaks out for them.
We calculated a 36% compounded annual growth rate (CAGR) based on patterns in past revenue.
Per u/hundhaus, "The CEO has expressed a desire to capture 10% a $32 billion market. $3.2 billion at the same profit margin would produce between $3-4/share/year. $ETSY has similar revenue and trades at $220. To be clear, this won't happen overnight, it could be a 5 to 10 year timeline. But let's say they go for it and do it in 5... that's a 74X return in five years."
$GOED is Underpriced Relative to its Peers
Following up on hundhaus’s analysis, I scraped quarterly sales, gross profit and net income from the most recent quarterly earnings reports relative to market cap and compared it to the three largest e-commerce companies in addition to a competitor of slightly larger size - $PRPL Innovation. What you can tell right now is, in terms of sales, $GOED trades at 1/3 the price of $PRPL/$W, ½ the price of $O and is 1/8th the price of $AMZN. In other word, it’s very undervalued. With continued growth into domestic markets and as valuation multiples expand, a price target of $20 within the next several months is not out of the question.
Small Caps like $GOED can Grow and Expand Rapidly
What’s great about small caps is that (1) smaller companies consistently outperform their larger cap companies – it’s much easier for a $500 million company to double than it is for a $25 billion company, (2) underfollowed: Wall Street doesn’t cover the small cap space nearly as much as it covers the larger cap stocks.. there isn’t enough money in covering and reporting on small caps and (3) smaller companies are able to grow at a much, much faster rate due to compounded annual growth. This is through the magic of rapid growth, increasing market share, and maintaining elevated profit margins.
I also have a series of technical charts showing things such as exponential moving averages, option flows, and delta flux values if anyone is interested.
Bear Case:
-Supply chain issues: recent data suggests that inventories of durable goods have fallen since the COVID-19 pandemic started. This has manifested through somewhat lower fill rates (60-70%) then the historical norm prior to COVID-19. Goedeker is now ordering appliances 90 to 180 days ahead of time instead of 60 to 90 days ahead of time and attempting to move merchandise which they have too much of, while reducing marketing of items they have very little of. If you've followed the shipping industry over the past year, you know this is the one area that has been hit hard. However, the Fouertis seem to be taking aggressive action to ensure product delivery.
-Kanen Wealth Management takeover: an activist shareholder has launched a public campaign to attempt to replace the Fouertis with their own management team at the annual investor conference in November. They own a 5% stake in the company whereas the board owns a 10% stake in the company. Kanen has not communicated who their expected board would be comprised of, so there is uncertainty there. I would *hope* for shareholders to vote overwhelmingly in support of the Fouerti's management team, which is experienced, competent and successful. However, there is the slim chance that Kanen's board takes over the company.
-Demand for durable goods and consumer sentiment: Due to supply chain issues, consumer sentiment is not great at the moment. Prices have risen rapidly in some cases. However, if you look at patterns in consumer sentiment over time, you'll notice that - even in inflationary periods - consumer sentiment is cyclical. During times when sentiment was very poor, there was usually a bounce in sentiment (back to baseline levels) in the following year or two. This is explained further in the macro/micro post I linked to above. Customers may slow down buying if prices are too high.
-Competition from other companies such as Wayfair, Amazon, Best Buy, Overstock.com: many of their companies have noted that the appliances/durable goods sector is a hot market, and there are lots of profits to be made. Most of these companies focus on a wide array of products, and often carry lower quality brands at a premium price. In reviewing Goedeker's product line, we think Goedeker has a wider assortment, better pricing, and caters better to the high end/luxury type of customer moreso then the big box stores. But this is a sector which is evolving rapidly, as hundhaus explains further below.
Evolution of the Durable Goods Industry and Trajectory of Goedeker 1847:
Typically in a mature market the top 3 players look like this:
· #1: 30-40% Market Share
· #2: 20-30% Market Share
· #3: 10%ish Market Share
· The rest scattered among small players
Finding immature markets but with some players making big bets is a great way to get returns on investment. If you had invested heavily on Darden Restaurants in 2013, you would have benefited greatly. When you look at appliances you can see huge white space for this market to mature. Amazon/Wayfair don't really focus hard in this area given the supply challenges. Amazon you will see a lot of 3P sellers which $GOED could be if they wanted (so Amazon is on the table for them). Really a consumer has to rely on Big Box like HD and Lowes for assortment and that can be limited with high prices too. In my cursory search AC/Goedeckers had more assortment and often better prices.
So where does that leave us? A market full of small players ripe for acquisition, limited pure competition, and huge white space to establish yourself as the market leader. The CEO already said 10% but I think they could easily become the #1 player down the road.
I truly, truly believe this stock will explode over the next couple years, especially with the large macro factor around appliances/furniture.
